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Philippines – BSP: Inflation could fall below 2% by January 2024
MANILA, Philippines — The Bangko Sentral ng Pilipinas said inflation could ease below two percent by January next year after staying above the BSP’s two to four percent target range for about 18 months.
In an interview with reporters on the sidelines of the general membership meeting of the Fintech Alliance of the Philippines, BSP Governor Felipe Medalla said inflation could fall below the lower end of the BSP’s target range by January due to base effects.
“Year-on-year, if you compare January next year with January last year (this year), it will be even below two (percent),” he said.
The last time inflation fell below two percent was in May 2020 when it hit 1.6 percent.
The headline inflation likely peaked at a 14-year high of 8.7 percent in January. It has stayed above the target range since April 2022.
Inflation averaged 7.9 percent in the first four months of the year, still way above the two to four percent target range, despite easing to an eight-month low of 6.6 percent in April.
Based on its latest assessment, the BSP’s Monetary Board now sees inflation averaging 5.5 percent from six percent for this year and 2.8 percent from 2.9 percent for next year.
Medalla pointed out that inflation is likely to ease below four percent by September or October this year.
The BSP chief attributed the downtrend in inflation to base effects as well as the impact of previous aggressive rate hikes delivered by the central bank along with the non-monetary interventions made by the national government.
The central bank raised key policy rates by a cumulative 425 basis points since it started its tightening cycle in May last year to tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 in October.
This brought the overnight reverse repurchase rate to a 16-year high of 6.25 percent from an all-time low of two percent.
As inflation cooled and the country booked a stronger-than-anticipated gross domestic product (GDP) growth of 6.4 percent in the first quarter, the Monetary Board took a prudent pause as it kept interest rates unchanged on May 18.
The BSP chief said it is still prudent to maintain a healthy interest rate differential of 100 basis points between the rates in the Philippines and that of the US Federal Reserve.
The BSP chief has signaled that the prudent pause could be extended in the next two to three rate-setting meetings, and a possible rate cut could happen next year.
Medalla added that the central bank could lower the reserve requirement ratio (RRR), or the level of deposits banks are required to keep with the central bank, as early as next month as the regulatory relief extended to banks is scheduled to expire on June 30.
The BSP has committed to bring the RRR for big banks to single digit this year from a high of 20 percent in 2018. The level was reduced by 200 basis points to 12 percent during the height of the COVID-19 pandemic in 2020.
Source: https://www.philstar.com/business/2023/05/30/2269997/bsp-inflation-could-fall-below-2-january-2024